467 F.

2d 253

H. F. D. NO. 26, INC., Appellant,

v.
MIDDLETOWN MERCHANDISE MART, Appellee.
No. 71-2171.

United States Court of Appeals,

Third Circuit.
Argued May 5, 1972.
Decided Sept. 26, 1972.

Judah I. Labovitz, Wolf, Block, Schorr & Solis-Cohen, Philadelphia, Pa.,

for appellant.
Albert H. Friedman, Philadelphia, Pa., for appellee.
Before VAN DUSEN, JAMES ROSEN and HUNTER, Circuit Judges.
OPINION OF THE COURT
JAMES ROSEN, Circuit Judge.

The determinative question for this landlord-tenant appeal is whether there has
been a renewal of a lease. The appellee, Middletown Merchandise Mart
(Middletown), conducts a general market in Middletown, a rural community
outside of Harrisburg, Pennsylvania. It operates a number of retail departments
by itself and leases some space to other retail operators, who are given the
exclusive right to sell specified merchandise. By an October 17, 1966 written
agreement, Middletown granted to H.F.D. No. 26, Inc. (H.F.D.) an exclusive
license to operate a retail sales department in its mart. The agreement, which
went into effect on November 1, 1966, was to continue for two years,
whereupon H.F.D. would have the option to renew for three further terms of
four years each. According to the terms of the agreement, the option had to be
exercised "by written notice to defendant at least 60 (sixty) days prior to the
expiration of the original term."
In order to exercise its option to renew, H.F.D. should have notified

Middletown of its intent to do so no later than August 31, 1968. This it did not
do. However, it did send a letter which was intended "as our official notice * *
* [that] we are exercising our option [to renew]."1 The terms of the lease
provided that the license would expire on October 31, 1968, but that date
passed and the parties continued to operate in the same manner as they had
acted under the lease, Middletown continuing to receive and accept the rent due
to it. On March 18, 1969, H.F.D. and Middletown supplemented the original
license agreement by entering into a letter agreement giving H.F.D. "an
additional 600 to 700 sq. ft. adjoining our present department in which to
enlarge our yard goods section." The letter provided that, "[t]his agreement in
no way will affect the terms and conditions of our present license agreement
exclusive of the merchandise categories [i. e. yard goods] listed." Eight months
later, on November 11, 1969, both parties entered into a second letter
agreement, which provided, inter alia, for an increase in H.F.D.'s rental
payments to Middletown. This letter stated that it was intended to "revise lease
beween H F D No. 26 and Middletown Merchandise Mart, dated 10/17/66 and
Fabric Dept. agreement dated March 18, 1969."2

On December 14, 1970, Middletown sent H.F.D. another letter, which

requested possession of the leased premises, purportedly "according to the
terms of our lease dated October 17, 1966 amended by agreement Nov. 11,
1969." The date by which Middletown wanted possession was not specified.

In view of the controversy surrounding its leasehold rights, H.F.D. on February

24, 1971 filed a complaint requesting the district court to declare the rights and
legal relations of the parties under the October 17, 1966 agreement.
Specifically, it urged the court to declare that H.F.D. was entitled to remain in
possession of its department at Middletown Merchandise Mart until October
31, 1972, and that it would thereupon have the option to renew the agreement
for two further terms of four years each. Middletown, in its answer, claimed
that H.F.D. had failed to exercise its option to renew in a timely manner so that
it had become a year-to-year tenant, whose term expired on October 31, 1971.

On March 26, 1971, one month after the complaint was filed, Middletown sent
a letter to H.F.D. advising it to vacate by October 31, 1971. Middletown stated
that the October 7, 1968 letter did not constitute a timely exercise of the
renewal option, so that Middletown had "the right to terminate at the end of any
yearly term by giving you 90 days written notice of our intention to do so. We
tender that notice herewith."

On October 26, 1971, both parties entered into a stipulation whereby they
"agreed that if they were to proceed to trial, there would be offered no

testimony other than appears in the * * * affidavits and that no documents

would be offered into evidence other than those attached as exhibits to those
affidavits." The district judge held that since there had been no timely renewal
of the agreement, it "expired October 31, 1968, which was the termination date
of the original lease. Thereafter, plaintiff occupied the property in question as a
tenant at will, which tenancy did continue until the time when the defendant
herein gave notice of termination." The judge thereby indicated that the tenancy
had terminated on October 31, 1971.
7

After notice of appeal was filed, Middletown commenced a state court action
for possession. By order of January 7, 1972 we enjoined Middletown from
continuing with the proceeding in that court or in any other court pending
disposition of this appeal. The state court action has since been removed to the
federal court and has been postponed pendente lite.

This diversity action requires the application of Pennsylvania substantive law to

the facts of our case.3 When a tenant holds over the landlord has a "choice of
remedies." "He [the landlord] might have looked upon the tenant as a trespasser
and summarily ejected him, or he might have treated him in holding over as a
tenant by sufferance, or he might have regarded the holding over as a
continuance under the terms of the lease." City of Pittsburgh v. Charles Zubik
& Sons, 404 Pa. 219, 221, 171 A.2d 776, 778 (1961).

H.F.D. admits that it failed to give the requisite 60 day notice and that mere
continuance in possession and payment of rent does not of itself constitute a
renewal of the lease with all its provisions. Young Men's Christian Association
v. Harbeson, 407 Pa. 489, 180 A.2d 916 (1962), citing Murtland v. English,
214 Pa. 325, 63 A. 882 (1906).

10

In Murtland the lease agreement contained an option to renew conditioned

upon three months written notice. The tenant did not give the notice required by
the lease nor any notice of his intention to exercise the option to extend the
lease for another term of five years. The court stated "[t]here was nothing to
indicate that the tenant had any intention of binding himself to stay upon the
premises for another full term of five years." Under such circumstances the
court held that a mere holding over is not in itself an acceptance of the option
upon the part of the lessee for the additional term of five years.

11

Murtland is clearly distinguishable from the case at bar. Middletown by its acts
and conduct cannot prevail on the thesis that the lease was not effectively
renewed. First, the October 7, 1968 letter to Middletown did express H.F.D.'s

intentions in unequivocal language to renew the lease under the terms and
conditions of the original lease dated October 17, 1966 and to be bound
thereby. Second, the March 18, 1969 letter agreement between the two parties
refers to "our present license agreement." Since the original license agreement
would have expired by that time if it had not been renewed, the March 18th
reference to a present agreement is strong evidence that there was indeed a
renewal within the contemplation of both parties. The third relevant indicia is
the letter agreement of November 11, 1969 which provides for an increased
rental.4 That Letter "serves notice" to "Revise Lease between H.F.D. #26 and
Middletown Merchandise Mart dated October 17, 1966." Like the March 18th
agreement the letter recognizes that the original lease was still in effect. These
agreements clearly establish that Middletown knew or had reason to know that
both parties recognized the renewal of the original license agreement. We
observe that Middletown made no reference to the now claimed "ineffective"
renewal notice of October 8, 1966, for more than two years; this was also one
month after the complaint was filed.5
12

We agree with the trial judge that: "a landlord will not be deemed to have
acquiesced to the validity of a late notice by merely remaining silent"; and there
is "no obligation or duty upon a landlord to affirmatively reject receipt of a late
notice of an election to exercise an option." However, these general principles
are not applicable here in light of the demonstrable evidence which establishes
acknowledgement of the original lease, amendments to the original lease and
increased rental accepted over a period of time by the landlord. Middletown
cannot support its position that it remained silent. The letter agreements are
revealing proof that it spoke loud and clear. Once a landlord has exercised his
choice of remedies and determined how he plans to treat a holdover tenant, "he
may not alter" his position. Emery v. Metzner, 191 Pa.Super. 440, 442, 156
A.2d 627, 631 (1959). Middletown obviously considered the original lease
renewed and is accordingly bound by its actions. Consequently, the March 26,
1971 notice by Middletown to treat H.F.D. as a tenant at will was ineffective.
Young Men's Christian Association v. Harbeson, supra, Cf. Warner Company
v. MacMullen, 381 Pa. 22, 112 A.2d 74, 77, 78 (1955).

13

The judgment in favor of the defendant will be reversed and the case remanded
for entry of judgment in favor of appellant H.F.D. consistent with this opinion.

The full text of the letter, dated October 7, 1968 reads as follows:
"This letter will act as our official notice to you whereby we are exercising our
option contained in the lease date October 17, 1966 by and between H.F.D. No.

26, INC. and Middletown Merchandise Mart Inc. a Pennsylvania corporation.

"Please consider this letter notice to you of our intention to continue operating
the Domestic and Piece Goods Department in the above store under the terms
and conditions of the above named lease."
2

The letter provides as follows:

"This letter serves notice to Revise Lease between H.F.D. #26 and Middletown
Merchandise Mart, dated 10/17/1966 and Fabric Dept. agreement dated March
18, 1969.
(1) H.F.D. #26 will pay 10% on all sales, this will include 2% advertising
allowance the base guarantee of $18,000.00 a year will remain and all sales
above $18,000.00 will be at 10%.
(2) A charge of 1 1/2% will be installed on all sales to cover central cashiering.
(3) Rent and Cashiering will be deducted weekly from remittance in lieu of
minimum advance rental check.
(4) This will become effective as of Dec. 1, 1969."

The license agreement also provides that:

"[T]his agreement is to be performed in Middletown, Pennsylvania, and shall
be governed by the laws of that state." par. 47. Middletown is a Pennsylvania
corporation; H.F.D. is a Delaware corporation.

During the first two years of the lease, Middletown collected all of the gross
receipts from H.F.D.'s department. It then deducted its rent and other charges
remitting the balance to the lessee. This practice for the collection of rent
continued after the November 1969 letter agreement which provided for an
increased rental

Our clerk's docket discloses that on January 13, 1972, Middletown applied for
an order requesting that H.F.D. file a bond pending disposition of the appeal in
this court. An order was entered directing appellant to file in the district court a
bond in the amount of $10,000. Annexed to the motion by appellee was an
affidavit which stated "on or about December 17, 1971, appellee entered into a
lease for the space occupied by the appellant in its Mart for an annual rental of
$19,575 plus $1.00 per square foot for storage space of approximately 556
square feet making a total annual rental of $20,121. The term of said lease is
three years." Middletown entered into this new lease approximately ten months

after suit was filed and while this appeal was pending. The new lease provided
for a rental in excess of that paid by H.F.D